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Improvement in transparency and costs of outsourcing for FGV

QUINT'S ASSIGNMENT

Design a professional outsourcing contract that would create transparency in costs and clear deliverables.

“FGV reduces 33% cost on the outsourcing contract.”

19000

employees

10

countries across Asia, North America and Europe

1,25

MT annual production

About FGV

Felda Global Ventures Holdings Berhad (FGV) is a Malaysia’s leading global agribusiness and is the world’s largest producer of crude palm oil (CPO). FGV has operations in more than 10 countries across Asia, North America and Europe. With more than 19,000 people in the group from our subsidiaries as well as joint-venture companies and associates, FGV aspires to be one of the top 10 agri-business conglomerate in the world by 2020.

Key Challenge

Both FGV and supplier were having challenges in setting up the outsourcing contract between both parties. The first attempt of the outsourcing contract provided a rather technical and asset based contract with pricing that was neither understood by FGV and supplier. The first draft of the outsourcing contract was created by the supplier and did not provide a legal section, in this current draft FGV not was protected in the engagement. FGV was not satisfied with the draft contract and asked the help of Quint to provide impartial support in creating a professional outsourcing contract that would protect FGV yet also the relation with the supplier. A further request of FGV was that the contract structure would be set up in such a way that it would be possible to source parts of the current services to other parties.

The Approach

Quint proposed, based on their Sourcing Governance Framework and Market Alignment Framework a contract structure that would create the appropriate transparency to both FGV and supplier. The proposed contract structure provided the appropriate legal construction in a master agreement and addendums as Service Agreements that would enable to make the contract modular, scalable and the ability to extract services to be provided by other parties. The proposed contract structure provided a financial section that would enable transparent charging for the services, which allowed both FGV and supplier to negotiate the pricing of the services based on clear deliverables and service consequences.

The Results

The contract structure was accepted by both parties. After acceptance, the new outsourcing contract was populated with the required details. The new sourcing contract provided significant improvement in the transparency of the services offered. It helped both FGV and supplier with managing the service-volumes, segmentation of the different services and the pricing logic of the services rendered. Due to the new sourcing contract structure FGV was able to reduce the total cost of the outsourcing contract with 33%.

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